OOIL's outlook: 'Margins to remain thin and volatile'

Thursday, August 08, 2013

Orient Overseas (International) Ltd. (OOIL), parent company of container liner company Orient Overseas Container Line (OOCL), said it had a loss of $15 million in the first half of 2013 compared to a profit of $117 million in the first half of 2012.
The Hong Kong-based company reported its results in U.S. dollars.
OOIL said revenue in the first half of 2013 was $3.03 billion, 3 percent less than the $3.12 billion recorded in the first half of 2012.
C.C. Tung, chairman of the company, said, “the global economy continued to be uncertain during the first half of 2013, and the container transportation industry faced the challenges of weak cargo growth, capacity oversupply and high bunker costs. Market growth across major trades grew only by approximately 2.2 percent during the first half of 2013. While the markets expect a more robust second half on the demand side, the industry is still expecting a full year newbuilding supply increase of 10 percent in TEU terms or 270 new ships in 2013. These factors culminated in a disappointing first half for the group.
“The operating environment in the first half of 2013 was characterized by the deterioration of freight rates from the last quarter of 2012, especially on the Asia-Europe trade, and the extremely competitive freight rates recorded in both the transpacific trade and the Intra-Asia trade. A series of rate increases during the second quarter in the market on the East West trades generally could not be sustained," he added.
OOCL’s total liftings for the first half of 2013 were 2,548,538 TEUs, down 1.5 percent, compared to the corresponding period last year. In the second quarter of 2013 they fell even more sharply: 1,307,084 TEUs, down 2.6 percent from the second quarter of 2012.
Revenues from shipping were $2.77 billion in the first half, down 3.7 percent from the first half of 2012. In the second quarter revenues also were down more sharply: $1.4 billion in the second quarter of 2013, off 9.8 percent when compared to the second quarter of the previous year.
During the first half of 2013, the Group took delivery of two 8,888 TEU ‘SX’ Class vessels and five 13,200 TEU ‘Mega’ vessels.
Tung said “as part of our retonnage program, we ordered 10 13,200-TEU mega-newbuildings in 2011 and disposed of six mid 1990s-built 5,400-TEU vessels in 2011 and 2012. Out of the 10 newbuildings, four are chartered to our alliance partner on a short-term basis. All 10 vessels, the remaining five to be delivered in the second half of 2013 and 2014, are expected to improve our cost structure given their size and design. In addition, we will take delivery of our remaining four 8,888-TEU vessels in 2014 and 2015. These vessels, originally contracted for delivery this year, were delayed as part of our joint initiative with the shipyard to improve main engine efficiency. In total, we expect enhanced competitiveness in the trades where all these vessels are deployed.”
Commenting on the outlook in the container shipping market, Tung said “there seems to be early indications that the global economic conditions are set to improve. We need to be mindful, however, that the slowdown of the Chinese economy, the ongoing economic restructuring in Europe, and the uncertainties around the sustainability and strength of the recoveries in the U.S. and Japan continues to post challenges for the global economy. Against this backdrop, the industry still faces a 21 percent growth in capacity between today and 2015. We therefore expect margins to remain thin and volatile, and that the situation will not improve substantially until fundamental supply and demand reaches a better balance.”
OOIL said its board of directors has resolved not to pay an interim dividend for
2013.
"This decision for the interim reflects the lack of profitability
for the first half of the year and is consistent with the group’s
efforts in preserving capital and minimising cash out flows during
unprofitable periods," the company said. - Chris Dupin